This market snapshot is part of a series of articles that HVS produces on key hotel sectors across Africa. Our analysis is based on data sourced from reports and articles from the internet from various writers.
Highlights
- Ethiopia benefits from a strong economy driven by the agriculture and manufacturing sectors. According to The Daily Maverick, “Over the last decade, Ethiopia has emerged as one of the fastest-growing – perhaps the fastest-growing – economies in Africa. Even though ‘double-digit’ growth has become something of an official mantra, independent appraisals still put it at over ten percent from 2003-13, double the sub-Saharan average. Growth is driven, rather, by a determined government policy of creating the conditions for development, notably through a massive level of infrastructural investment.”
- Ethiopia’s travel and tourism sector is still in a growth phase, and is largely supported by infrastructure improvements. The number of domestic trips reached 8.1 million, while international trips reached 681,000 in 2013 according to figures from the Ministry of Culture and Tourism (MoCT), the main source countries for which were China, the US, Nigeria, Sudan and Belgium. Over the foreseeable future, the sector is expected to record growth in the volume of inbound and outbound tourists as Ethiopian Airlines establishes new routes, increases flight capacity and launches airfare discounts;
- Meetings, Conferences, Congresses and market segment statistics showed a sharp increase from 15,721 to 47,516 arrivals from 2008 to 2009. The numbers dropped to 36,145 in 2010 but again rose to 50,531 in 2011. Ethiopia remains a major conference destination, according to the International Congress and Convention Association the country has achieved a global rating of 93rd and African ranking of 11th.
- The MICE sector in Addis Ababa has potential to grow substantially over the years due to the large diplomatic community and expanding economy. Africa’s global market share in the Meeting industry is only 3.3%, and within this much smaller market, Ethiopia is largely absent according to Managing Director of OZZIE Business & Hospitality Group, Mr Kumneger Teketel;
- Ethiopia’s primary hotel industry is to be found in Addis Ababa. There the hotels experience occupancies that are in the 80% region, and this is due to the high demand and lagging supply. Addis Ababa hotels have recently been reported to be achieving the highest room rates on the continent;
Hotel Demand Patterns
Politics and Economics
The Ethiopian economy has enjoyed sustainable double digit and broad-based growth. In 2012/13, real GDP grew by 9.7 percent, moderately higher than the previous year. In the first four years of Growth and Transformation Plan I (GTP-I) implementation, the GDP had grown on average by about 10.1 percent per annum. This achievement is slightly lower than 11.2 percent annual average growth rate target set for the entire GTP-I period. It should be noted that according to the reporter Ethiopia.com the Government of Ethiopia is set to unveil the second five-year plan–the Growth and Transformation Plan (GTP II)–which is believed to be more realistic and less ambitious when compared to its predecessor, GTP I. The first GTP, which failed to meet its target in various sectors, ended on July 7 July 2015.
Ethiopia’s economy is based on agriculture, which accounts for about 43% of the gross domestic product (GDP), 90% of foreign currency earnings, and 85% of employment. Generally, the overall economic growth of the country has been highly associated with the performance of the agriculture sector.
The industrial sector, which mainly comprises of small and medium enterprises, accounts for about 12.4% of GDP. Similarly, the service sector comprised of social services, trade, hotels and restaurants, finance, real estate, etc. accounts for about 45% of GDP. A strong fiscal stance, particularly measures taken towards improving tax administration and enforcement, improved the overall fiscal position. The fiscal deficit remains within an acceptable threshold albeit widened from 1.2% of GDP.
Due to the investment-friendly environment created in the country, the inflow of foreign direct investment (FDI) has been increasing over the last twenty-two years. Accordingly, out of the total investment projects licensed between 1992- 2012, FDI’s share is about 16%. The overall trend of investment since 2012, both the total number of projects and capital invested have shown slight increase.
Airport Demand & Border Crossings
International tourism arrival figures as measured at Bole Airport have shown a steady increase in the past decade. According to the Airports Council International the total passenger movements have increased from 1,3 million in 2003 to 8,85 million in 2013, a compound annual growth rate of 21%. During the same period international passengers have increased at a CAGR of 14,3% and domestic passengers by a CAGR of 26,5%.
Further opportunities to increase tourism figures can be generated through the Africa Open Skies policy as contained in the Yamoussoukro Decision of 1999. The Yamoussoukro Decision committed 44 signatory countries to deregulating air services and to opening regional air markets to transnational competition. The implementation of this agreement, however, has been slow, and the benefits have not been realized.
An independent study by InterVISTAS has calculated that through the implementation of the Africa Open Skies, Ethiopia can potentially attract 55,000 more tourist visits and generate 14,800 additional airline industry employment as well as 59.8 million US dollars of GDP.
| Arrivals of tourists at Ethiopia’s borders, by purpose of visit | |||||
| 2007 | 2008 | 2009 | 2010 | 2011 | |
| Leisure, recreation and holidays | 128,533 | 99,394 | 138,070 | 171,414 | 183,008 |
| Visiting friends and relatives | 26,337 | 25,482 | 35,593 | 28,672 | 37,116 |
| Business | 43,455 | 49,209 | 71,374 | 77,816 | 91,064 |
| MICE | 17,882 | 15,721 | 47,516 | 36,145 | 50,531 |
| Transit | 58,916 | 77,572 | 81,481 | 84,229 | 86,020 |
| Not stated | 36,820 | 62,779 | 53,252 | 70,029 | 75,699 |
| Total | 311,943 | 330,157 | 427,286 | 468,305 | 523,438 |
| Source: MoCT | |||||
Bole International Airport is the largest airport in Ethiopia and is the home of Ethiopian Airlines, which is reported to have already become the largest airline in Africa based on fleet size, and could overtake South African Airways in 2015 as the largest based on passengers carried. The airline has also been reported to have purchased an additional fleet of aircraft to boost its capacity.
A capital project to expand the airport was embarked upon in 2012, and this is expected to be completed in 2018.
Tourism Demand
The tourism industry is growing because of Government commitment to provide an enabling environment. Enormous opportunities exist for tourism investment in international standard eco-tourism, specialised international restaurants and guided and independent tours.
Potential foreign investors can take full advantage of these opportunities through direct investments or joint ventures with Ethiopians. Opportunities also exist in this sector in the construction of star-designated hotels and resort hotels all over the country.
The direct contribution of Travel & Tourism to GDP was 4.1% of total GDP in 2014, and is forecast to rise by 1.2% in 2015, and to rise by 4.7% pa, from 2015-2025 to 3.3% of total GDP in 2025. In 2014 Travel & Tourism directly supported 979,000 jobs (3.6% of total employment). Visitor exports generated 35.4% of total exports in 2014 and this is forecast to fall by 1.8% in 2015, and grow by 4.0% pa, from 2015-2025. Travel & Tourism investment in 2014 was 3.7% of total investment. It should rise by 4.6% in 2015, and rise by 4.6% pa over the next ten years to 2.9% of total investment in 2025.
Hotel Performance and Seasonality
The Ethiopian climate is considered to be suitable for all-year round tourism. The country’s rich cultural heritage, its peace-loving population and its position as the head office of the African Union helps Ethiopia to attract all tourism market segments all-year round. Over time, in the medium to long term future, the Ethiopian hotel industry will mature to a level where hotel industry statistics will be available to assist in the measurement of performance and seasonality.
Demand & Supply
The stock of hotels in Ethiopia has increased sharply over the last few years. While tourist accommodation is available as the major attraction, improvement as well as new construction is taking place. The GTP’s target on the number of tourist arrivals by the end of 2014/15 was set at 1 million in-bound tourist arrivals. The total number of hotel rooms and beds of all hotel establishments in Ethiopia was 19,025 and 24,083, respectively in 2011. A total of 37 investors have taken investment permit in Addis Ababa alone to construct hotels with star ratings in 2012/13. Furthermore, the projected unsatisfied demand for hotel single night rooms in Ethiopia in the years 2015 and 2020 is forecast at 1.3 million and 3.1 million, respectively. Awash International Bank note, in line with this, sectoral distribution of outstanding loans of the banking system in Ethiopia indicated that credit to hotels sector accounted for an insignificant amount of 2% in 2010 and 1.85% in 2011. Therefore, improvements of the banking system in extending credit services would be helpful for the hotel industry.
Room Rates
According to AFKInsider, Addis Ababa has the most expensive hotels on the continent. This is not surprising as Ethiopia is undersupplied with hotels for the amount of demand the country is experiencing. On the other hand, it has been forecast through various research studies that the unsatisfied demand for hotel nights in Ethiopia will be 1.3 million in 2015, giving out a warning that the figure could rise to over 3 million by 2020 if new hotels are not built, according to SEA Africa. From the foregoing, it is clear that it will be quite a long time before room rates start to normalize in line with comparative countries.
New Supply
At the end of the 2014 AHIF, it was announced that many hotel development agreements were signed between the various industry participants and conference delegates. “The burgeoning nation now has the prospect of seeing its international hotel brands growing to 10, with the signing of six agreements between international hotel management groups and Ethiopian real estate owners”.
There were six agreements in all for international hotel brands in Ethiopia. Marriott has had a deal with Sunshine Construction for the past four years, and their hotel, located on Cameroun Street, is expected to begin operations in 2015. The Louvre Hotel Groups has already opened Golden Tulip Addis; Tsemex and Intercontinental Hotels Group to open the Crowne Plazza Addis; Wyndham Hotel Group and ADM Business Plc for the Ramada Addis Hotel; Accor Hotel Group with Enyi General Business for the Pullman Addis Hotel and Best Western International with Great Abyssinia Plc and Noah Real Estate for the Best Western Plus and Best Western hotels. All these hotels are expected to be opened between 2015 and 2017, with the next year seeing Crowne Plaza, Marriott and Ramada Addis coming into business. Last on the list will be Pullman Addis in 2017.
Hotel Investment and Values
In 2012 the HVI reported a room value average of $290,759 for Addis Ababa, which rose the following year to $301,739. In 2014 the average room value for Addis Ababa dropped to $294,478, which translates to -2.4%, against a rise of 3.8% the previous year. We anticipate the growth in the market, through increased demand and the supply of high quality hotels will ensure the value of hotels in Addis Ababa and Ethiopia generally remains high and significantly ahead of the African average.
About HVS
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For further information about the services of the Cape Town office, please contact Tim Smith, Managing Partner, +27 797 342296, tsmith@hvs.com or Tshepo Makhudu, Senior Consultant, +2782 301 4572, tmakhudu@hvs.com
About the Authors
Tim Smith, MRICS, is Managing Partner of our Cape Town office, focusing on the Sub-Saharan market. He graduated from De Montfort University with a degree in Estate Management and has worked for firms of chartered surveyors since 1995, focusing on the valuation and sale of hotels and other leisure property throughout the EMEA region.
Tshepo Makhudu is a senior consultant in our Cape Town office. He has many years of property industry experience in development, management, finance and strategic consulting. He has held employment at leading property, banking and telecommunications multi-national institutions. Most notably he worked in the hospitality industry during the most vibrant era of the industry in South Africa, with a responsibility for the efficient delivery of hotel and casino development projects. Tshepo studied commerce and property development and management at leading universities in South Africa and received leadership training in the USA.